Modified Report 2003

ANALYSIS OF BANK’S INVESTMENTS IN SLR
SECURITIES, SCOPE OF TREASURY PRODUCTS

FOR RETAIL CUSTOMERS AND SUGGESTIONS
FOR PROFITABILITY
BY
SUNANDA BANERJEE
UNDER THE GUIDANCE OF

Mr. Mukesh Kumar, Prof. Sridhar Shridharan
Dealer- T & I Department, SBBJ Faculty, K.J.Somaiya Institute of
Mumbai Management Studies & Research,
Mumbai
K. J. Somaiya Institute of Management Studies & Research,

Mumbai
MAY-JUNE 2009
K.J.Somaiya Institute of Management Studies and Research, Mumbai 1

ACKNOWLEDGEMENT
I am highly indebted to Mr. K.S.Subbaraman- Dy. General Manager, Mr. R.K. Garg-
Asst. Gen. Manager, Domestic Treasury for their invaluable support without which the
project could have not been worked out the way it has. I am very much thankful to Mr.
Mukesh Kumar (Dealer- Domestic Treasury) who helped me immensely in understanding
the basics and complexities of Treasury and Investments along with additions that made
the quality of report better. I would also like to extend a note of thanks to all other
employees of SBBJ who helped me directly or indirectly in successful completion of my
project. I am also grateful to Prof. Sridhar Shridharan who gave his precious inputs,
which also helped me to take the plunge of getting into an absolute different stream of
finance. Lastly, I whole-heartedly thank Mr. Barun Banerjee who lent his moral support
all through the tough time of making mistakes and learning from the

ABSTRACT
OBJECTIVE- The project aims to analyze Bank’s investment in SLR securities, analyze
the scope of treasury products for retail customers and give suggestions for profitability.
BACKGROUND- Treasury Management is one of the most important functions of a

commercial Bank in India. The main function of Treasury is Fund Management,
Management of CRR, Investments and Trading. Treasury also quotes forex rates for its
retail and corporate customers. Any such Bank in India is required to invest minimum
24% of their Demand and Time Liabilities (DTL) in SLR securities. These investments
are categorized into various other investments of SLR and Non- SLR like Government
Securities, Treasury Bills, and Equity etc. These altogether make the investment portfolio
and form the major part of the bank’s profitability. It is also important to see the various
types of portfolios existing in the market and if any other could be applicable to the
bank’s investment pattern. The other part of the project involves finding qualitative
information about possibility of scope of treasury products for retail customers. This part
mainly deals with what are the current services offered to individual customers from the
treasury and what can be, if any, further scope for improvements in this segment.
PROBLEM FORMULATION- The problem lies in the fact that the Nationalized Banks
are still facing few hurdles regarding their Investment Portfolio Management and are
unable to bring a high level of diversification proportionate to the profits in their
portfolios. Also, they are still not open for customized services for retail customers who
can be potential profitable customers for investments.
SCOPE OF THE PROJECT- The project tries to cover all the aspects of a treasury and
investment department, its functions, the working of the department in both the streams
of rupee and forex and its importance. It also tries to analyze the various types of
investments the treasury deals in and how each affects the day to day and over all
profitability of the bank. The project tries to take a look at the basic idea of a portfolio
and the need of a one by an individual or an organization, different types of portfolios
and how the bank is trying year on year to make a more effective portfolio, which would
give maximum returns along with balancing the risk factor. The project also evaluates the
scope of treasury products for retail customers as how this strategy inclusive of others can
make an upward shift to the portfolio profitability of the bank, keeping the expense in this
expansion minimal.
METHODOLOGY- This is an exploratory research work in which primary data was

collected, by making a questionnaire and collecting relevant data from various bankers,
professionals in different areas, management students, and technical professionals from
various sectors. Various techniques were implied in the questionnaire like the nominal
and ordinal scales to provide with questions with easily identifiable and better options to
select an answer. Secondary data was collected from websites, research papers, annual
reports, master circulars, magazines, newspapers etc. The primary data was consolidated

for finding out the new customer expectations, their knowledge in the Investment
segment and how can the Bank help the customers in providing better services along with
increasing their profitability. The secondary and primary data is formatted in a sequence,
which would be easier to comprehend the flow of the report.
CONCLUSION- The report analyzed the working of the Treasury and Investment
Department along with understanding the various with main focus on Investments,
especially SLR and Non- SLR. Also, it was on priority to seek how new channels can be
enabled for investments by individuals. The results of the survey done as a part of the
project gave useful inputs to the suggestions for profitability. It was concluded that few
more inclusions in terms of aggressive investments and others can be done and consider
whether there are other ways in which customer access to financial products and services
can be improved.

TABLE OF CONTENTS
1). ABOUT SBBJ............................................................................................................................ 7
2.) TREASURY............................................................................................................................... 8
a) Introduction ............................................................................................................................. 8
b) Functions of Treasury ............................................................................................................ 8
i. Rupee Treasury...................................................................................................................... 9
ii. Forex Treasury: .................................................................................................................. 11
c) Importance of Treasury ......................................................................................................... 12
3.) INVESTMENT: AN OVERVIEW ...................................................................................... 13
4) TYPES OF INVESTMENTS.................................................................................................... 15
5) SLR INVESTMENTS............................................................................................................... 18
a. Introduction ........................................................................................................................... 18
b. Classification of SLR Investments ........................................................................................ 19
C. Types of SLR Investments................................................................................................... 20
i. Government Securities Market.............................................................................................. 20
ii. SDL ................................................................................................................................. 22
iii. T-Bills............................................................................................................................. 22
6) NON- SLR INVESTMENTS.................................................................................................... 24
a. Equity..................................................................................................................................... 24
b.Equity Mutual Funds .............................................................................................................. 24
c.Debt Mutual Funds ................................................................................................................ 26
d.Non-SLR Bonds ................................................................................................................. 27
e. Commercial Paper ............................................................................................................... 28
f. Certificate of Deposits............................................................................................................ 28
7) INVESTMENT PORTFOLIO .................................................................................................. 30
a. Introduction ........................................................................................................................... 30
b. Basic Types of Portfolios ...................................................................................................... 30
c. Need of Portfolios.................................................................................................................. 31
8) SBBJ INVESTMENT PORTFOLIO ........................................................................................ 32
a. Introduction to SBBJ Investments ......................................................................................... 32
b. Effect of External Environment & Past Year Strategy.......................................................... 32
c. Analysis of Bank’s Portfolio ................................................................................................. 34
9) SCOPE OF TREASURY PRODUCTS FOR RETAIL CUSTOMERS ................................... 36
a. The Concept........................................................................................................................... 36
b. Role of SBBJ Brand Value & Policies .................................................................................. 36

c. Real Time Gross Settlement & National Electronic Fund Transfer ...................................... 37
d. Foreign Currency Non Resident (Bank) Account (FCNRB)................................................. 39
e. Possibility of Application of the concept............................................................................... 39
f. Assessment through primary data collection( Questionnaire) ............................................... 40
g. Change in profitability of the Bank ....................................................................................... 40
h. Advantage to the Retail customer ......................................................................................... 41
10) SUGGESTIONS TO INCREASE IN PROFITABILITY....................................................... 42
11) ANNEXURE, APPENDIX & LIST OF ABBREVATIONS.................................................. 45
12) REFERENCES...................................................................................................................... 52

1). ABOUT SBBJ
State Bank of Bikaner & Jaipur is the largest associate of State Bank of India and largest
Bank of the Rajasthan state as well. State Bank of Bikaner and Jaipur was established in
1963 after amalgamation of erstwhile State Bank of Jaipur (established in 1943) with
State Bank of Bikaner (established in 1944) as a subsidiary of State Bank of India. The
Bank took over the business of the Govind Bank Pvt. Ltd. on 25.04.1966. The Bank's
main area of operation is Rajasthan, with presence at all-important centres in the country.
The Bank has 860 branches consisting of 849 business branches, 8 service branches, 2
asset recovery branches and 1 treasury branch and has sponsored 3 RRBs.
The Bank follows transparent corporate governance policies and is preparing itself for
smooth migration to Basel II. ONo table of contents entries found.n technology front,
during 2005-06, the Bank changed all branches to Core Banking Solution (CBS). The
Bank has installed 453 ATMs and all ATMs are the part of over 10,000 ATMs of State
Bank Group. Internet Banking has been extended to all branches for retail customers and
selected branches for corporate customers. The Bank has rolled out Business Process
Reengineering (BPR) initiatives to improve operational efficiency and better customer
service and is committed to offer value added to the customers. The Bank has been
earning profit continuously since its inception and the Bank's business crossed the level
of Rs 69,312 crore with a net profit of Rs. 403.45 crore at the end of March, 2009.
Vision:
“To be a values driven modern bank aspiring for excellence in customer service,
perpetually enhancing shareholders’ value and contributing to the economic development
of the society.”
Mission:
“To continue to be a premier bank of Rajasthan with all India presence, committed to
empower its personnel for providing excellent, personalized and quality customer service
by adoption of modern technology, achieving sustained and profitable growth in business
thereby increasing shareholders’ value and contributing to the welfare of the society.”

2.) TREASURY
a) Introduction
Treasury of a bank plans, organizes and controls cash and borrowings so as to optimize
interest and currency flows, and minimizes the cost of funds. It also plans and executes
communication to enhance investors’ and depositors confidence in the organization.
Treasury management (or treasury operations) includes management of an organization’s
holdings in and trading in government and corporate bonds, currencies, financial futures,
options and derivatives, payment systems and the associated financial risk management.
All banks have departments devoted to treasury management, as do larger corporations.
SBBJ, the largest associate of SBI, also has well equipped treasury department backed by
the experienced professionals who support clients in managing their forex and interest
rate exposures. SBBJ's treasury operations are channeled through the Rupee Treasury and
the Forex Treasury. The Rupee Treasury deals in the domestic money and debt markets
while the Forex Treasury deals mainly in the local foreign exchange market. The
Integrated Risk Management Department located at Head Office in Jaipur monitors the
investment, risk and Asset-Liability Management (ALM) aspects of the Bank.
Products and Services
o Asset Liability Management (ALM): The ALM function comprises management
of liquidity, maturity profiles of assets and liabilities and interest rate risks.
o Investments: SBBJ offers financial support through a wide spectrum of
investment products that can substitute the traditional credit avenues of a
corporate like commercial papers, preference shares, non-convertible debentures,
securitized paper, fixed and floating rate products
These products allow leveraging the flexibility of financial markets, enabling efficient
interest risk management and optimizing the cost of funds. They can also be customized
in terms of tenors and liquidity options. SBBJ invests in these instruments issued by a
company, thus providing a dynamic substitute for traditional credit options. The Rupee
Treasury handles the bank’s domestic investments. The bank’s trading operations are
magnanimous in size and value in the domestic market and cover government securities,
corporate bonds, call money and other instruments.
b. Functions of Treasury
The function of treasury now extends beyond mere control of monetary flows and
positions. Exchange rate and interest rate volatility in the wake of internationalization and
deregulation of currency markets, the need to increase control of credit risk in
increasingly competitive markets and the appearance of new financial instruments have
emphasized treasury management to become more forecast- based in its actions, with
more focus on the management of investments, treasury deficits and different financial

risks. Basic tasks are of minimizing financial costs of resources and maximizing returns
on cash surplus, thus providing with the necessary treasury funding in the desired
currency at the appropriate time. The core function of a treasury department at any bank
is the measuring, monitoring, and controlling of interest rate risk (IRR). IRR is the risk
that changes in prevailing interest rates will adversely impact the value of the bank's
assets and liabilities. Generally speaking, the department would forecast net interest
income (NII) and measure the sensitivity of NII to changes in rates.
The output of the analysis of the investments would be supplied to the institution's ALCO
(Asset/Liability Management Committee). ALCO is responsible for overseeing a variety
of asset and liability (ALM) activities including the establishment of guidelines for the
bank's risk tolerance levels. The treasury department may further be tasked with ensuring
IRR stays within guidelines set by ALCO by entering into a variety of financial
transactions, such as interest rate swaps, futures contracts, and so on.
i. Rupee Treasury:
The Rupee Treasury carries out the bank’s rupee-based treasury functions in the domestic
market. Broadly, these include Asset Liability Management, Investments and Trading.
The Rupee Treasury also manages the bank’s position regarding statutory requirements
like the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR), as per the norms
prescribed by the Reserve Bank of India.

The call/notice money market is the most important segment in the Indian money market.
In this market, banks and primary dealers (PDs) are allowed to both borrow and lend. The
ease of transactions as well as low transaction costs arising from sparse documentation
with same day settlement of funds in call/notice money market acted as strong incentives
for non-bank participants to prefer the call market for parking their short-term funds.
Call/Notice money is designed for management of liquidity for a very short period of
time – mostly overnight. If the period is more than one day and up to 14 days it is called
‘Notice money’. Money lent for 15 days to 1 year is called term money. This market is
purely an unsecured market as no collaterals are offered for securing the
lending/borrowing. There are no brokers in the call money market and trading is done
over the phone. Settlement is done between the participants through the current account
maintained with the RBI. The call market enables the banks and non-bank financial
institutions to even out their day-to-day deficits and surpluses of money. Commercial
banks, Co-operative Banks and Primary Dealers (PDs) are allowed to borrow and lend in
this market. Banks borrow in this money market for the following purpose:
a. To fill the gaps or temporary mismatches in funds flow
b. To meet the CRR & SLR mandatory requirements as stipulated by the
Central bank
c. To meet sudden demand for funds arising out of large outflows.
Thus call money usually serves the role of equilibrating the short-term liquidity position
of banks. By convention, the term "Money Market" refers to the market for short-term
requirement and deployment of funds. Money market instruments are those instruments,
which have a maturity period of less than one year. The most active part of the money
market is the market for overnight call and term money between banks and institutions
and Repo transactions. Call Money / Repo are very short-term Money Market products.
The below mentioned instruments are normally termed as money market instruments:
Money Market Instruments
1) Certificate of Deposit (CD)

2) Commercial Paper (C.P)
3) Inter Bank Participation Certificates
4) Inter Bank term Money
5) Treasury Bills
6) Bill Rediscounting
7) Call/ Notice/ Term Money
Mumbai Inter-bank Offer Rate - MIBOR
The Committee for the Development of the Debt Market had studied and recommended
the modalities for the development for a benchmark rate for the call money market.
Accordingly, NSE had developed and launched the NSE Mumbai Inter-bank Bid Rate
(MIBID) and NSE Mumbai Inter-bank Offer Rate (MIBOR) for the overnight money

market on June 15, 1998. The success of the Overnight NSE MIBID MIBOR encouraged
the Exchange to develop a benchmark rate for the term money market. NSE launched the
14-day NSE MIBID MIBOR on November 10, 1998 and the longer term money market
benchmark rates for 1 month and 3 months on December 1, 1998.
The MIBID/MIBOR rate is used as a bench mark rate for majority of deals struck for
Interest Rate Swaps, Forward Rate Agreements, Floating Rate Debentures and Term
Deposits.
ii. Forex Treasury:
The bank’s team of seasoned, skilled and professional dealers tailors customized
solutions that meet specific requirements and extract maximum value out of each market
situation. The bank’s dealing rooms provides trading facilities and employs state-of-the-
art technology and information systems. The Forex Treasury also structure and facilitate
execution of derivatives including long term rupee-foreign currency swaps, rupee-foreign
currency interest rate swaps and cross currency swaps. Various rates applicable in the
forex market are described in short below.
Forex Spot Rate: The current market rate at which a currency can be bought or sold is
called foreign exchange spot rate. It is the most commonly used rate and unless
specifically mentioned as Cash, Tom or Forward it is taken for granted to be Spot rate.
Cash Rate: when settlement takes place on the date of the transaction.
Tom Rate: when settlement takes place on the next working date from the transaction
date.
Forward Rate: when settlement takes place anytime beyond spot. The spot Forex rate
differs from the forward rate. Forward rate refers to the exchange rate of a currency on a
future date (anything beyond spot).
Exchange Rate:
The rate at which one currency can be exchanged for another is called Exchange Rate. An
exchange rate will always have two currencies. One is constant and is called the Base
currency and the other keeps varying and is called the Variable currency. The fluctuation
in the exchange rate is depicted by the change in the variable currency.
Cross Currency Rates:

When one currency cannot be expressed in another currency, a third currency is used as
an intermediate and the resultant is called a Cross Currency.
London Interbank Offer Rate - LIBOR

It is an interest rate at which banks can borrow funds, in marketable lot from other banks
in the London Interbank market. The British Bankers’ Association in London fixes the
LIBOR on a daily basis at 11 ‘O’ clock. The LIBOR is derived from a filtered average of
the world's most creditworthy banks' Interbank deposit rates for larger loans with
maturities between overnight and one full year. The LIBOR is the world's most widely
used benchmark for short-term interest rates. It's important because it is the rate at which
the world's most preferred borrowers are able to borrow money.
c. Importance of Treasury
Treasury management or basic cash management propitiates the development of

administrative techniques conducive to optimizing the level of disposable assets to be
maintained by a company. It is therefore essential to establish the right level of
disposable assets to short-term financial investments at companies. On the one hand it
enables companies to carry on the normal transactions that arise in the course of their
activities and avoid any treasury gaps. On the other hand it helps them cover any
unexpected needs for cash by acting as a preventive balance. However, there are also
disadvantages in being too conservative as it is clear that having liquid assets available
constitutes an opportunity cost for a company, as the return on those assets is lower then
the return on productive investments, but there may still be transaction costs arising from
the sale or purchase of financial assets, and disadvantages in terms of taxation. It is also
characterized mainly with the act on the short-term liquidity of a company, and at the
same time affects those factors and processes that translate immediately into cash, with
the ultimate aim of increasing the profitability of the company and improving working
capital management. This vision of treasury management from a broad perspective covers
three fundamental aspects, as shown in the following figure: -

The basic attribute is liquidity management, through which the necessary disposable
assets are obtained when required, at the minimum possible cost. This responsibility
requires the forecasting of liquid asset flows, the planning of short-term financing and
investment sources and relationships with financial institutions, and risk management.
The second attribute is working capital management, which handles the disposable assets
obtained from sales and collections, and purchases and payments. These two cash flows -
payments and collections- are the principal source of financing and investment for
business activity.
3.) INVESTMENT: AN OVERVIEW

In finance, an investment is a monetary asset purchased with the idea that the asset will
provide income in the future or appreciates and is sold at a higher price. Investments
include the purchase of bonds, stocks or real estate property. So, putting it in a filtered
sense, investment is the commitment of funds by buying securities or other monetary or
paper (financial) assets in the money markets or capital markets, or in fairly liquid real
assets, such as gold, real estate, or collectibles. Valuation is the method for assessing
whether a potential investment is worth its price. Returns on investments will follow the
risk-return spectrum.
Types of financial investments include shares, other equity investment, and bonds
(including bonds denominated in foreign currencies). Trades in contingent claims or
derivative securities do not necessarily have future positive expected cash flows, and so
are not considered assets, or strictly speaking, securities or investments. Nevertheless,
since their cash flows are closely related to (or derived from) those of specific securities,
they are often studied as or treated as investments.

Investments are often made indirectly through intermediaries, such as banks, mutual
funds, pension funds, insurance companies, collective investment schemes, and
investment clubs. Though their legal and procedural details differ, an intermediary
generally makes an investment using money from many individuals, each of whom
receives a claim on the intermediary. Within personal finance, money used to purchase
shares, put in a collective investment scheme or used to buy any asset where there is an
element of capital risk is deemed an investment.
In many instances the terms saving and investment are used interchangeably, which
confuse the distinction of the extent of risk factor attached with both. For example many
deposit accounts are labeled as investment accounts by banks for marketing purposes.
Whether an asset is a saving(s) or an investment depends on where the money is invested:
if it is cash then it is savings, if its value can fluctuate then it is investment.
An investor profile or style defines an individual's preferences in investment decisions,
for example:
o Short term trading (active management) or long term holding (buy and hold)
o Risk averse or risk tolerant / seeker
o All classes of assets or just one (stocks for example)
o Value stock, growth stocks, quality stocks, defensive or cyclical stocks...
o Big cap or small cap stocks,
o Use or not of derivatives
o Home turf or international diversification
o Hands on, or via investment funds and so on.
The style / profile is determined by

o Objective personal or social traits such as age, gender, income, wealth, family, tax
situation...
o Subjective attitudes, linked to the temper (emotions) and the beliefs (cognition) of
the investor.
One of the most important concepts is that of investment banking. Evolved as a general
entity of few banks, it has gradually confirmed to be known as a financial institution that
raises capital, trades in securities and manages corporate mergers and acquisitions.
Investment banks profit from companies and governments by raising money through
issuing and selling securities in the capital markets (both equity, bond) and insuring
bonds (selling credit default swaps), as well as providing advice on transactions such as
mergers and acquisition.
A majority of investment banks offer strategic advisory services for mergers,

acquisitions, divestiture or other financial services for clients, such as the trading of
derivatives, fixed income, foreign exchange, commodity, and equity securities. Trading
securities for cash or securities (i.e., facilitating transactions, market-making), or the
promotion of securities (i.e., underwriting, research, etc.) was referred to as the "sell
side". Dealing with the pension funds, mutual funds, hedge funds, and the investing

public who consumed the products and services of the sell-side in order to maximize their
return on investment constitutes the "buy side".
All primary (urban) co-operative banks (PCBs) (scheduled as well as non-scheduled) are
required to maintain stipulated level of cash reserve ratio (CRR) and statutory liquidity
ratio (SLR). In regard to cash reserve, the provisions of section 42 (1) of the Reserve
Bank of India Act, 1934 (RBI Act, 1934), governs scheduled PCBs whereas, non
scheduled PCBs are governed by the provisions of section 18 of the Banking Regulation
Act, 1949 (As Applicable to Co-operative Societies) [(BR Act, 1949(AACS)]. The
provisions of section 24 of the Act ibid govern maintenance of SLR for all banks
(scheduled as well as non-scheduled).
In case of Statutory Liquidity Ratio, the terms of section 24 (1) and 24 (2A) (a) of the
B.R. Act, 1949 (AACS) state that every bank (scheduled and non-scheduled), is required
to maintain, on daily basis, liquid assets, the amount of which shall not be less than 25
per cent or such other percentage not exceeding 40 per cent, as may be notified by RBI
(at present the SLR is 24% of DTL), of its demand and time liabilities in India as on the
last Friday of the second preceding fortnight. So, it is mandatory from regulatory side to
maintain the specified liquidity ratio for a PSB. Detailed descriptions of the relevant
investments are given in the later chapters.
4) TYPES OF INVESTMENTS
There are many different types of investment for retail investors. Broadly speaking, they
fit into four asset classes:
i. Short term deposits
ii. Bonds
iii. Property
iv. Shares
Within each asset class there are investments to suit different kinds of risk, duration,
returns and liquidity. There are also different ways of investing. A brief description of
each type of investment is presented here.
i. Short term deposits
Bank savings accounts:

The simplest kind of short term (or cash) investment is a savings account. Returns are
low compared to other investments, but returns are guaranteed by the bank. One can
withdraw part or all the money whenever one wants (total liquidity). This makes them
ideal for short term savings goals or as a place to keep your emergency fund - They're not
a good investment option for medium or long term goals.
Bank fixed term investments:
The bank is given a lump sum for a set period (a fixed term) usually three, six or 12
months by the customer. The money is locked away for the fixed term. In return, it
fetches a higher interest rate than one could get in a straight savings account. These can
be a good short or medium term investment, depending on interest rates. Interest rates are
dynamic in nature.
ii. Bonds
A bond is issued by a government or a company. One gives them money for a certain
period, and they promise to pay a certain interest rate and re-pay on maturity. Bonds lock
the money away for a set period of time, but they can sometimes be traded. Generally,
they aren't a good short term investment. Small investors don't usually invest directly in
bonds, it's more usual to go through a managed fund. Finance company debentures are a
kind of bond. The most important aspect of a bond price needs a mention here, which is
Yield Curve. Bond prices change in the opposite direction (inversely proportional) of
yield change. Therefore, lower bond yields are reflected in higher bond prices and vice
versa. Price volatility increases with maturity. The longer the maturity the greater is the
volatility factor. The lack of credit quality and insufficient calls protection, greatly affect
price volatility. These are few properties that affect the pricing of a bond. The Yield to
Maturity is actually the average rate of return of a bond, taking into account its coupon
rate and the capital gain/ loss on it.
iii. Property
Owning property rented to individuals or businesses can be a safe and profitable

investment. Returns from property investment come from rental income, after deducting
expenses, and from the increase in the value of property over time.
iv. Shares
By investing in shares in a public company listed on a stock exchange one gets the right
to share in the future income and value of that company. The return comes in two ways:
i. Dividends paid out of the profits made by the company.
ii. Capital gains made because you're able at some time to sell
your shares for more than you paid.

Gains may reflect the fact that the company has grown or improved its performance or
that the investment community sees that it has improved future prospects. Any loss or
gain in value is said to be 'realized' if you sell the shares right there and then. If you hold
onto them the loss or gain is 'unrealized'. All of the listed company shares in a particular
country or industry may increase or decrease in price because of rises and falls in
economic confidence or changes in the particular industry. There is a range of complex
factors which influence share prices on a daily basis. Therefore by investing in a wide
range of companies operating in a range of industries and countries, an investor has a
good chance of making long-term gains. Shares should be used as a long-term
investment. A look at the direct investment is important as it forms an integral part of an
investment portfolio to see why some investors prefer to develop their own investment
portfolios themselves.
SLR & Non-SLR Investments- Managed funds allow investors access to markets which
would otherwise be difficult to invest in. But, from a Bank’s perspective, especially the
treasury, the investments are classified into SLR and Non- SLR investments. A
description of what actually SLR is, its various affects on investment portfolio of a bank
and its other aspects are dealt with in the next chapter.

5) SLR INVESTMENTS
a. Introduction
Statutory Liquidity Ratio (SLR) is a term used in the regulation of banking in India. It
is the amount, which a bank has to maintain in the form of:
i. Cash
ii. Gold valued at a price not exceeding the current market price,
iii. Unencumbered approved securities (Government securities or
Gilts come under this) valued at a price as specified by the RBI
from time to time.
The quantum is specified as some percentage of the total demand and time liabilities
(i.e. the liabilities of the bank which are payable on demand anytime, and those liabilities
which are accruing in one months time due to maturity) of a bank. The Reserve Bank of
India fixes this percentage. The maximum and minimum limits for the SLR are 40% and
25% respectively. Following the amendment of the Banking regulation Act (1949) in
January 2007, the floor rate of 25% for SLR was removed. Presently the SLR is 24%
with effect from 8 November 2008.
The objectives of SLR are:

A. To restrict the expansion of bank credit.
B. To augment the investment of the banks in Government securities.
C. To ensure solvency of banks. A reduction of SLR rates looks eminent to support
the credit growth in India.
The SLR is commonly used to contain inflation and fuel growth, by increasing or
decreasing it respectively. This counter acts by decreasing or increasing the money
supply in the system respectively. Indian banks’ holdings of government securities
(Government securities) are now close to the statutory minimum that banks are required
to hold to comply with existing regulation. While the recent credit boom is a key driver
of the decline in banks’ portfolios of G-Sec, other factors have played an important role
recently. These include interest rate increases changes in the prudential regulation of
banks’ investments in G-Sec.
Most G-Secs held by banks are long-term fixed-rate bonds, which are sensitive to
changes in interest rates. Increasing interest rates have eroded banks’ income from
trading in G-Sec. Recently a huge demand in G-Sec was seen by almost all the banks
when RBI released around 1,08,000 crore rupees in the financial system. This was by
reducing CRR, SLR & Repo rates and was amended to increase lending by the banks to
the corporate and resolve liquidity crisis. Providing economy with the much-needed fuel
of liquidity to maintain the pace of growth rate becomes the most vital injection for a
slowing economy. However the exercise became futile with banks being over cautious of
lending in highly shaky market conditions. Banks invested almost 70% of this money to
rather safe Govt securities than lending it to the corporate.

Difference between SLR & CRR
SLR restricts the bank’s leverage in pumping more money into the economy. On the
other hand, CRR, or Cash Reserve Ratio, is the portion of deposits that the banks have to
maintain with the RBI. Higher the ratio, the lower is the amount that banks will be able to
use for lending and investment.
The other difference is that to meet SLR, banks can use cash, gold or approved securities
where as with CRR it has to be only cash. CRR is maintained in cash form with RBI,
where as SLR is maintained in liquid form with banks themselves.
b. Classification of SLR Investments
The investments in the SLR securities are classified as Held till Maturity (HTM),
Available for Sale (AFS) or Held for Trading (HFT). The securities held under AFS are
marked to market on a regular basis and any depreciation has to provide at the end of the
month. The securities under HFT category are traded to take benefit of short-term
fluctuations in the market.
I) Held to Maturity:
Securities with fixed or determinable payments and fixed maturity that a bank has
positive intention and ability to hold to maturity may be classified as Held to Maturity.
For example, investment in equity shares (including banks’ investment in the equity
shares of their subsidiaries/ joint ventures), perpetual preference shares, units of open
ended mutual fund schemes and securities with a put option would not qualify for
inclusion in HTM category. A bank does not have a positive intention to hold to maturity
an investment in a financial asset with a fixed maturity if:
(a) It intends to hold the financial asset for an undefined period;

(b) It stands ready to sell the financial asset in response to changes in market interest rates
or risks, liquidity needs, changes in the availability of and the yield on alternative
investments, changes in financing sources and terms or changes in foreign currency risk;
(c) The issuer has a right to settle the financial asset at an amount significantly below its
amortized cost.
Banks weed out ineligible securities held in HTM category and shift these securities to
AFS category once in a year. On such reclassification, the difference between their book
value and market value shall be accounted for in ‘Unrealized gains/ losses on AFS
portfolio’. Consequently, the market value of the individual security on the date of
shifting would become the book value of the security in the AFS portfolio. Banks’
Boards fix internal limits for holdings in HTM category, which are followed on a
consistent basis at least for a period of 3 to 5 financial years, without any change.

(II) Held for Trading
Trading generally reflects active and frequent buying and selling. The securities acquired
principally for the purpose of selling in the near term with the objective of generating
profit from short term fluctuations in price/ interest rates may be classified as Held for
Trading. These securities are to be sold within 90 days. Investments classified under
‘Held for Trading’ category will be marked to market and provided for as indicated in the
Trading policy of the Bank.
(III) Available for Sale

Available for sale securities are those securities that are designated as available for sale or
are not classified under HTM or HFT categories. Banks shall include their investments in
the equity shares of their subsidiaries/ associates/ joint ventures in AFS category. As
advised by RBI the investments classified under ‘Available For Sale’ category will be
marked to market at least at quarterly intervals and the net depreciation.
C. Types of SLR Investments
The SLR Investments are generally done in the form of:

i. Government Securities (G-Secs)
ii. State Development Loans (SDL)
iii. T-Bills
i. Government Securities Market

The Commercial Banks in India are required to maintain the 24% of their Demand and
Time Liabilities (DTL) as Statutory Liquidity Ratio (SLR). The SLR investment is to be
maintained either in the form of Government Securities (G Sec), State Development
Loans (SDL) and Treasury Bills (T Bills).
Government of India and State Government fund the deficit in the annual budget through
borrowings. G-Secs or Government of India dated Securities are Rupees One hundred
face-value units/ debt paper issued by Government of India in place of their borrowing
from the market.
The term government securities encompass all Bonds & T-bills issued by the Central
Government, state government. These securities are normally referred to, as "gilt-edged"
as repayments of principal as well as interest are totally secured by sovereign. They also
provide reasonable returns and, therefore, offer the most suitable investment opportunity.
However, these securities are subject to only one type of risk i.e., interest-rate risk.
Subject to changes in the overall interest rate scenario, the price of these securities may
appreciate or depreciate.
The prices of Government Securities depend on interest rates. The factors, which govern
the interest rates are mostly economy related and are commonly, referred to as
macroeconomic. Some of these factors are:
1) Demand for money,

2) Government borrowings

3) Supply of money
4) Inflation rate
5) The Reserve Bank of India and the Government policies.
The Reserve Bank of India is the main regulator for the Indian Money Market. Apart
from its role as a regulator, it has to simultaneously fulfill several other important
objectives viz. managing the borrowing program of the Government of India, controlling
inflation, ensuring adequate credit at reasonable costs to various sectors of the economy,
managing the foreign exchange reserves of the country and ensuring a stable currency
environment.
RBI controls the deployment of money through its policies on CRR, SLR, priority sector
lending, export refinancing, guidelines on investment assets etc. Another major area
under the control of the RBI is the interest rate policy. Earlier, it used to strictly control
interest rates through a directed system of interest rates. Over the years RBI has moved
slowly towards a regime of market determined controls.
Earlier, the RBI used to issue straight coupon bonds i.e. bonds with a stated coupon
payable periodically. In the last few years, new types of instruments have been issued.
These are:-
Inflation linked bonds: These are bonds for which the coupon payment in a particular
period is linked to the inflation rate at that time - the base coupon rate is fixed with the
inflation rate (consumer price index-CPI) being added to it to arrive at the total coupon
rate. The idea behind these bonds is to make them attractive to investors by removing the
uncertainty of future inflation rates, thereby maintaining the real value of their invested
capital.
FRB or Floating Rate Bonds: These bonds come with a coupon floater, which is usually a
margin over and above a benchmark rate. E.g., the Floating Bond may be
nomenclature/denominated as +1.25% FRB YYYY (the maturity year). +1.25% coupon
will be over and above a benchmark rate, where the benchmark rate may be a six-month
average of the implicit cut-off yields of 364-day Treasury bill auctions. If this average
works out 9.50% p.a then the coupon will be established at 9.50% + 1.25% i.e.,
10.75%p.a. Normally FRB (floaters) also bear a floor and cap on interest rates. Interest so
determined is intimated in advance before such coupon payment, which is normally,
Semi-Annual.
Zero coupon bonds: These are bonds for which there is no coupon payment. They are
issued at a discount to face value with the discount providing the implicit interest
payment. In effect, zero coupon bonds are like long duration T - Bills.
Dated Securities: A government paper, which has its maturity tenure of more than one
year, is called a dated security. At present, there are Central Government dated securities
with a tenor up to 30 years in the market. Auction/Sale Dated securities are sold through
auctions. A half yearly calendar is issued in case of Central Government dated securities,
indicating the amounts, the period within which the auction will be held and the tenor of
the security. Fixed coupon securities are sometimes also sold on tap that is kept open for
a few days. The GoI and the RBI announce the auction dates through press release and
advertising, financial newspapers and wire agencies, a few days (normally a week) before

the auction. Subscriptions can be for a minimum amount of Rs.10, 000 and in multiples
of Rs.10, 000. Auctions are conducted and bids are submitted electronically on PDO-
NDS system. Provident funds can submit their bids competitive/non-competitive to their
respective custodian or to any bank/PD who is an NDS member.
ii. SDL
The State Government loans are called SDLs i. e. State Development Loans. The
respective state governments issue these but the RBI coordinates the actual process of
selling these securities. Each state is allowed to issue securities up to a certain limit each
year. The planning commission in consultation with the respective state governments
determines this limit. Generally, the coupon rates on state loans are marginally higher
than those of GOI-Secs issued at the same time.
The procedure for selling of state loans, the auction process and allotment procedure is
T
similar to that for GOI-Sec. State Loans also qualify for SLR status Interest payment and
other modalities similar to GOI-Secs. They are also issued in dematerialized form. SGL
also issued in the physical form (in the form of Stock Certificate) and are transferable. No
stamp duty is payable on transfer for State Loans as in the case of GOI-Secs. In general,
State loans are much less liquid than GOI-Secs. The tenor of state government securities
is normally ten years. State government securities are available for a minimum amount of
Rs.10, 000 and in multiples of Rs.10, 000. These are available at a fixed coupon rate.
iii. T-Bills:
Treasury bills are actually a class of Central Government Securities. Government of India
issues treasury bills, commonly referred to as T-Bills against their short term borrowing
requirements. The T-Bill of below mentioned periods are currently issued by
Government/Reserve Bank of India in Primary Market 91-day and 364-day T-Bills. All
these are issued at a discount-to-face value and are redeemed at par. For example a
Treasury bill of Rs. 100.00 face value issued for Rs. 91.50 gets redeemed at the end of its
tenure at Rs. 100.00. 91 days T-Bills are auctioned under uniform price auction method
where as 364 days T-Bills are auctioned on the basis of multiple price auction method.
Types of T-bills:
They are issued for different maturities viz. 14-day, 28 days (announced in Credit policy
but yet to be introduced), 91 days, 182 days and 364 days. 14 days T-Bills had been
discontinued recently. 182 days T-Bills were not re-introduced. Treasury bills are
available for a minimum amount of Rs. 25,000 and in multiples of Rs. 25,000. Treasury
bills are also issued under the Market Stabilization Scheme (MSS).
Type of Day of Day of
T-bills Auction Payment*
91-day Wednesday Following Friday
182-day Wednesday of non-reporting week Following Friday

364-day Wednesday of reporting week Following Friday
While 91-day T-bills are auctioned every week on Wednesdays, 182-day and 364-day T-
bills are auctioned every alternate week on Wednesdays. The Reserve Bank of India
issues a quarterly calendar of T-bill auctions which is available at the Banks’ website. If
the day of payment falls on a holiday, the payment is made on the day after the holiday.
Payment by allottees at the auction is required to be made by debit to their/ custodian’s
current account. Provident funds can participate in all T-bill auctions either as
competitive bidders or as non-competitive bidders. Participation as non-competitive
bidders would mean that provident funds don’t need to quote the price at which they
desire to buy these bills. The Reserve Bank allots bids to the non-competitive bidders at
the weighted average price of the competitive bids accepted in the auction. Allocations to
non-competitive bidders are in addition to the amount notified for sale. In other words,
provident funds do not face any uncertainty in purchasing the desired amount of T-bills
from the auctions. Banks, Primary Dealers, State Governments, Provident Funds,
Financial Institutions, Insurance Companies, NBFCs, FIIs (as per prescribed norms),
NRIs & OCBs can invest in T-Bills. T-bills auctions are held on the Negotiated Dealing
System (NDS) and the members electronically submit their bids on the system.

6) NON- SLR INVESTMENTS
Securities having SLR status, as specified by RBI, are eligible securities for investment
by banks to meet their SLR commitments under Sec 24 (2-A) of the B. R. Act, 1949. All
other investments are Non- SLR investments. As the name suggest, investment in Non-
SLR bonds cannot be considered eligible for SLR requirement. These include PSU
bonds, Corporate bonds and even certain Government securities like Oil Bonds, Food
Bonds, Fertilizer Bonds, etc.
The Non-SLR Investments are classified into:

a. Equity
b. Equity Mutual Funds
c. Debt Mutual Funds
d. Non- SLR Bonds
e. Commercial Paper (CP)
f. Certificate of Deposit (CD)
a. Equity
It is a financial instrument by which company invite the public to invest their money in
the company and investor can become a partner of the company. Generally, when the
company have insufficient money to expand its business it comes with equity shares.
When one purchases stocks or equities, he becomes a part owner of the business. This
entitles the stakeholder to vote at the shareholders' meeting and allows receiving any
profits that the company allocates to its owners. These profits are referred to as dividends.
While bonds provide a steady stream of income, stocks are volatile. That is, they
fluctuate in value on a daily basis. Many stocks don't even pay dividends, in which case,
the only way that one can make money is if the stock increases in value - which might not
happen. Compared to bonds, stocks provide relatively high potential returns. The Indian
Equity Market is also the other name for Indian share market or Indian stock market. The
Indian market of equities is transacted on the basis of two major stock indices, National
Stock Exchange of India Ltd. (NSE) and The Bombay Stock Exchange (BSE), the trading
being carried on in a dematerialized form. The physical stocks are in liquid form and
cannot be sold by the investors in any market. Two types of funds are there in the Indian
Equity Market; Venture Capital Funds and Private Equity Funds.
b. Equity Mutual Funds

A mutual fund is a collection of stocks and bonds. Mutual funds are set up with a distinct
focus which can be nearly anything: large stocks, small stocks, bonds from governments,
bonds from companies, stocks and bonds, stocks in certain industries, stocks in certain
countries, etc. The primary advantage of a mutual fund is that one can invest his money

without the time or the experience that are often needed to choose a sound investment.
The income earned through these investments and the capital appreciation realized is
shared by its unit holders in proportion to the number of units owned by them.
Mutual Fund Operation Flow Chart
The advantages of investing in a Mutual Fund are:

Professional Management
Diversification
Convenient Administration
Return Potential
Low Costs
Liquidity
Transparency
Flexibility
Choice of schemes
Tax benefits
Well regulated
There are many entities involved in the organization of a mutual fund. It can be depicted
with the help of the following diagram:-

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial
position, risk tolerance and return expectations etc. This variety is mainly categorized as:
1) By Structure
i. Open- ended schemes
ii. Close- ended schemes
iii. Interval schemes
2) By Investment Objective
i. Growth schemes
ii. Income schemes
iii. Balanced schemes
iv. Money market schemes
3) Other Schemes
i. Tax- saving schemes
ii. Special schemes
iii. Index specific schemes
iv. Sector specific schemes
Equity mutual funds are also known as stock mutual funds. Many mutual funds invest
primarily in companies of one of these sizes and are thus classified as large-cap, mid-cap
or small-cap funds. Equity fund managers employ different styles of stock picking when
they make investment decisions for their portfolios. Some managers buy both kinds of
stocks, building a portfolio of both growth and value stocks. Since equity funds invest in
stocks, they have the potential to generate more returns. On the other hand they carry
greater risks too. Equity funds can be classified into diversified equity funds and sectoral
equity funds.
c. Debt Mutual Funds:
Debt funds offer a superior risk-adjusted proposition along with tax benefits. From an
inflation-adjusted perspective, additional to liquidity of investments, at low costs fixed
income mutual funds compare very favorably to fixed deposits. The significant part is
that of the underlying fixed income nature of the product. While the tax advantages are
just one part, the sheer variety of products available for every risk, return and liquidity
requirement is in itself a significant advantage.
Fixed Deposits generally have a lock-in-period wherein in a pre-mature withdrawal by an

investor would mean a monetary penalty that would be charged to the investor. Also,
certain funds offer regular income schemes where the interest payment is given to
investor for his investment at regular intervals, a facility not available with FDs. Debt
funds also tend to perform better in periods of economic slowdown. Analysts believe that
debt should be looked upon as an effective hedge against equity market volatility, which
lends stability in terms of value and income to a portfolio. Some hybrid debt schemes
take exposure in equities allowing investors participate in the stock markets as well.

Debt funds have a fairly wide range of schemes offering something for all types of
investors. Liquid fund, Liquid plus funds, Short-term income funds, GILT funds, income
funds and hybrid funds are some of the more popular categories.
For long-term investors, income funds provide the best opportunity to gain from interest
rate movements. There are also the short-term plans for investors. Fixed maturity plans
have been gaining in popularity as they minimize the interest rate risk and offer
reasonable returns to debt investors. Income funds enjoy many of the tax benefits granted
to plain-vanilla mutual fund products: Favourable treatment of long term capital gains,
From a post-tax perspective, mutual fund units score over bank FDs, especially for those
investors who are in the highest tax bracket.
Generally speaking, there is a linear relationship between investment horizon and returns
other things remaining the same. The risks of investing in a debt fund are similar to that
of other mutual funds. Overall investments in debt funds score above other traditional
investment avenues in terms of tax-adjusted returns, liquidity and safety.
d. Non-SLR Bonds
Generally grouped under the general category called fixed-income securities, the term
bond is commonly used to refer to any securities that are founded on debt. When we
purchase a bond, we are lending out our money to a company or government. In return,
they agree to give us interest on our money and eventually pay us back the amount we
lent out. The main attraction of bonds is their relative safety and stability; however, come
at a cost because there is little risk, there is little potential return. As a result, there is
lower rate of interest on bonds than other securities.
Public Sector Undertaking Bonds (PSU Bonds): These are Medium or long-term debt
instruments issued by Public Sector Undertakings (PSUs). Most of the PSU Bonds are
sold on Private Placement Basis to the targeted investors at market determined interest
rates and issued in demat form. In order to attract the investors and increase liquidity,
issuers get their bonds rated by rating agencies like CRISIL, ICRA, CARE, etc. Some of
the issues may be guaranteed by Central / State Government enabling them to get a better
rating. The bonds may carry call / put option.
Corporate Bond: Corporate Bonds are issued by public sector undertakings and private
corporations for a wide range of tenors but normally up to 15 years. However, some
Banks and Companies like Reliance have also issued Perpetual Bonds.
Compared to government bonds, corporate bonds generally have a higher risk of default.
This risk depends, of course, upon the particular corporation issuing the bond, its rating,
the current market conditions and the sector in which the Company is operating.

Corporate bondholders are compensated for this risk by receiving a higher yield than
government bonds. Some corporate bonds have an embedded call option that allows the
issuer to redeem the debt before its maturity date. Some even carry a put-option for the
benefit of the investors. Other bonds, known as convertible bonds, allow investors to
convert the bond into equity. SBI DFHI is an active player in Non SLR Bonds.
e. Commercial Paper
Commercial Paper is an unsecured money market instrument issued in the form of a

promissory note. It was introduced in 1990 with the view to enable highly rated corporate
borrowers/ to diversify their sources of short- term borrowings. Now, corporate, primary
dealers and All- India Financial Institutions (FI) are eligible to issue CP.
A corporate is eligible to issue CP only when:
The tangible net worth of the company, as per the latest audited balance sheet, is
not less than Rs. 4 crore.
Company has been sanctioned working capital by bank/s or FIs.
The borrowal account of the is classified as a Standard Asset by the bank/s or FIs
All eligible participants shall obtain the credit rating for issuance of Commercial Paper
either from CRISIL, ICRA CARE or the FITCH Ratings India Pvt. Ltd. or such other
credit rating agency (CRA) as may be specified by the Reserve Bank of India from time
to time, for the purpose. The minimum credit rating shall be P-2 of CRISIL or such
equivalent rating by other agencies.
The issuers shall ensure at the time of issuance of CP that the rating so obtained is current
and has not fallen due for review or is beyond maturity date. CP can be issued for
maturities between a minimum of 7 days and a maximum up to one year from the date of
issue. The aggregate amount of CP from an issuer shall be within the limit as approved
by its Board of Directors or the quantum indicated by the Credit Rating Agency for the
specified rating, whichever is lower. CP can be issued in denominations of Rs.5 lakh or
multiples thereof. Amount invested by a single investor should not be less than Rs.5 lakh
(face value). Only a scheduled bank can act as an IPA (Issuing & Paying Agent) for
issuance of CP.
f. Certificate of Deposits
Certificates of Deposit (CDs) is a negotiable money market instrument and issued in

dematerialized form or as a Usance Promissory Note, for funds deposited at a bank or
other eligible financial institution for a specified time period. Various directives issued by
the Reserve Bank of India, as amended from time to time presently govern guidelines for
issue of CDs. CDs can be issued by i) scheduled commercial banks excluding Regional
Rural Banks (RRBs) and Local Area Banks (LABs); and (ii) select all-India Financial
Institutions that have been permitted by RBI to raise short-term resources within the
umbrella limit fixed by RBI. Banks have the freedom to issue CDs depending on their
requirements. An FI may issue CDs within the overall umbrella limit fixed by RBI, i.e.,
issue of CD together with other instruments, viz., term money, term deposits, commercial

papers and inter-corporate deposits should not exceed 100 per cent of its net owned
funds, as per the latest audited balance sheet. Minimum amount of a CD should be Rs.1
lakh, i.e., the minimum deposit that could be accepted from a single subscriber should not
be less than Rs. 1 lakh and in the multiples of Rs. 1 lakh thereafter. CDs can be issued to
individuals, corporations, companies, trusts, funds, associations, etc.
Non- Resident Indians (NRIs) may also subscribe to CDs, but only on non-repatriable
basis, which should be clearly stated on the Certificate. Such CDs cannot be endorsed to
another NRI in the secondary market. CDs may be issued at a discount on face value.
Banks/FIs are also allowed to issue CDs on floating rate basis provided the methodology
of compiling the floating rate is objective, transparent and market-based. The issuing
bank/FI is free to determine the discount/coupon rate. The interest rate on floating rate
CDs would have to be reset periodically in accordance with a pre-determined formula
that indicates the spread over a transparent benchmark. Banks have to maintain the
appropriate reserve requirements, i.e., cash reserve ratio (CRR) and statutory liquidity
ratio (SLR), on the issue price of the CDs. Physical CDs are freely transferable by
endorsement and delivery. Demat CDs can be transferred as per the procedure applicable
to other demat securities. There is no lock-in period for the CDs.

7) INVESTMENT PORTFOLIO
a. Introduction
Modern portfolio theory (MPT) proposes how rational investors use diversification to
optimize their portfolios, and how a risky asset should be priced. MPT models an asset's
return as a random variable, and models a portfolio as a weighted combination of assets
so that the return of a portfolio is the weighted combination of the assets' returns.
Moreover, a portfolio's return is a random variable, and consequently has an expected
value and a variance. Risk, in this model, is the standard deviation of return. The model
assumes that investors are risk averse, meaning that given two assets that offer the same
expected return, investors will prefer the less risky one. Thus, an investor will take on
increased risk only if compensated by higher expected returns. Conversely, an investor
who wants higher returns must accept more risk. The exact trade-off will differ by
investor based on individual risk aversion characteristics. The implication is that a
rational investor will not invest in a portfolio if a second portfolio exists with a more
favorable risk-return profile – i.e., if for that level of risk an alternative portfolio exists
which has better expected returns.
Portfolio
A portfolio is a combination of different investment assets mixed and matched for the
purpose of achieving an investor's goal(s). Items that are considered a part of a portfolio
can include any asset one owns - from real items such as art and real estate, to equities,
fixed-income instruments and their cash and equivalents. For the purpose of this section,
we will focus on the most liquid asset types: equities, fixed-income securities and cash
and equivalents. An easy way to think of a portfolio is to imagine a pie chart, whose
portions each represent a type of vehicle to which you have allocated a certain portion of
your whole investment. The asset mix one chooses according to his/ her aims and
strategy will determine the risk and expected return of your portfolio.
b. Basic Types of Portfolios

In general, aggressive investment strategies - those that shoot for the highest possible
return - are most appropriate for investors who, for the sake of this potential high return,
have a high-risk tolerance (can stomach wide fluctuations in value) and a longer time
horizon.
Aggressive portfolios generally have a higher investment in equities.
The conservative investment strategies, which put safety at a high priority, are most
appropriate for investors who are risk- averse and have a shorter time horizon.
Conservative portfolios will generally consist mainly of cash and cash equivalents, or
high-quality fixed-income instruments.

The main goal of a conservative portfolio strategy is to maintain the real value of the
portfolio, or to protect the value of the portfolio against inflation. This portfolio would
yield a high amount of current income from the bonds and would also yield long-term
capital growth potential from the investment in high quality equities.
A moderately aggressive portfolio is meant for individuals with a longer time horizon
and an average risk tolerance. Investors who find these types of portfolios attractive are
seeking to balance the amount of risk and return contained within the fund.
The portfolio would consist of approximately 50-55% equities, 35-40% bonds, 5-10%
cash and equivalents.
The above asset classes can further be broken down into subclasses, which also have
different risks and potential returns. For example, an investor might divide the equity
portion between large companies, small companies and international firms. The bond
portion might be allocated between those that are short-term and long-term, government
versus corporate debt, and so forth. More advanced investors might also have some of the
alternative assets such as options and futures in the mix. So, the number of possible asset
allocations is practically unlimited.
c. Need of Portfolios
Different securities perform differently at any point in time, so with a mix of asset types,
the entire portfolio does not suffer the impact of a decline of any one security. When
stocks go down, one may still have the stability of the bonds in a portfolio. It's really just
the simple practice of famously said quote of "not putting all your eggs in one basket." If
one spreads his/ her investments across various types of assets and markets, one will
reduce the risk of catastrophic financial losses. Investments could include a mix of
stocks, bonds, mutual funds, and other investment vehicles. A portfolio should also be
balanced to help minimize exposure. It can help you put an individual’s money to work,
allowing him to build wealth faster and helping to save for future events. Whether a
person is saving for retirement or want to buy a new house, an investment portfolio,
properly managed, can help him/ her get there. So, it can be summarized that a portfolio
is needed to evaluated on a regular basis and increase the values of portfolio.

8) SBBJ INVESTMENT PORTFOLIO:
a) Introduction to SBBJ Investments
The total business of the bank has crossed Rs 69,300 crore at the end of March 2009.
State Bank of Bikaner & Jaipur Ltd has announced the financial results for the quarter
ended on 31-Mar-2009. The bank is targeting business growth of at least Rs 16,300 crore
in the current fiscal, comprising deposits of Rs 9,100 crore and advances of Rs 72,00
crore, as against Rs 9,885 crore in FY'09. The Net Sales was at Rs.4387.33 crores for the
year ended on 31-Mar-2009 against Rs.3523.68 crores for the year ended on 31-Mar-
2008. The Net Profit / (Loss) was at Rs.403.45 crores for the year ended on 31-Mar-2009
against Rs.315 crores for the year ended on 31-Mar-2008. As of 31st March 2009, the
total investment of the Bank in SLR securities was Rs 9717.62 crore out of which Rs
7351.96 crore was invested in Central Government Securities, Rs 1967.30 crores in State
Development Loans (SDL) and Rs 398.36 crore in Treasury Bills. During the Financial
Year 2008-09, SBBJ booked a profit of Rs 32.68 crores from Sale of SLR securities.
Total turnover of the treasury department of SBBJ for the year ending March 2009, was
Rs 1, 21,064.37 crores. Initially, the strategy for the previous year can be assessed so as
to see if there can be a pattern for investments, which are not proving very advantageous.
And if not, then which new paths can be discovered for the same purpose.
SBBJ INVESTMENTS: AT A GLANCE
As on 31st March 2009, total investments of State Bank of Bikaner and Jaipur (SBBJ)
was Rs 11075.16 crore as against Rs 10566.08 crore as on 31st March 2008. Total
investments as on 31st March 2007 were Rs 8831.11 crore.
Out of total investments of Rs 11075.16 crore as on 31st March 2009, Rs 10414.53 crore
(94.04%) was SLR investments. Under SLR investments, Rs 8240.99 crore was
categorized under HTM category (with no mark to market risk due to rise in interest
rates). Under AFS category also, Rs 1217.71 crore of investments was in Treasury Bills.
Investment in Treasury Bills also carries zero interest rate risk. Only Rs 955.83 crore of
SLR investments was sensitive to interest rate risk. (Details are given in the annexure)
The investment profile of the Bank shows focus of treasury department on SLR
investments. Activity in Non SLR investments (Equity, Equity Mutual Funds, Non SLR
Bonds and Certificate of Deposits) is very low. Low Non-SLR investments denote low
risk appetite of the bank for investments.
b. Effect of External Environment & Past Year Strategy

Effect of External Environment- Boosted by positive global cues and liquidity
supportive measures by RBI, the Indian markets had a spectacular rise in the month of
April 09, with the Sensex rising 17.5% to close at 11,403 and the Nifty rising 15% to
close at 3474. Reflecting the return of risk appetite the emerging market bond spreads
reduced. This was reflected in the performance of the various capitalization-based
indices, with small cap and mid cap stocks performing better than the large cap stocks.
Similarly return of risk appetite was reflected in the sectoral indices with the Banks,
Capital Goods, Metal and Realty indices outperforming the Sensex, while Auto, FMCG,
Consumer Durables, Health Care, IT, Oil & Gas, Power and PSU lagging the Sensex. For
the month, in cash equities, FIIs were net buyers ofUSD1.3 billion, while Mutual Funds
were net buyers ofUSD8 million. Even corporate results (ex financials) for the quarter
ended March 09 that were declared (many large companies are yet to declare results) in
the month of April showed signs of stabilization. In its Annual policy announcement on
21st April 09, the RBI announced a cut in Repo (rate at which it lends) and reverse Repo
(rate at which it absorbs excess cash) by 25 basis points to 4.75% and 3.25% respectively,
while stating it would ensure ample liquidity by continuing to take an active role in the
borrowing program; which would also help banks lower lending rates. The RBI also
extended many liquidity enhancing measures which were due to expire related to
refinance of banks, special term Repo for mutual funds, NBFC’s and housing companies,
relation of ECB and FCCB norms, and export credit. In its annual report the RBI
provided the following macro estimates for financial year ending March 2010: GDP
growth is expected to be 6%. M3 growth is expected from 17% to 19%, deposit growth at
18%, credit Growth at 20%, while it expects inflation to reverse by midyear and rise
to4%by March 10. After the sharp rally in face of skepticism in April, a lot of investors
seem to be wary to dip their feet in the markets at current levels. It may be noted
however, that the Indian markets are still available at reasonable/cheap valuations, when
Sensex earnings yield is compared with long term government security yields. And even
though negative global news flow or unexpected election results may impact the markets
in the short term, it will only provide an entry opportunity to investors focusing on the
long-term prospects of our nation’s capital markets. Investors should use uncertainty and
fear generated by such unexpected events to invest, with a view that after a short
dislocation, economic growth would continue apace due to India’s inherently resilient
domestic economic structure. Focus on how value compares with price paid for a stake in
the economic future of this country will help investors maintain calm in the face of
storms, while generating wealth on a sustainable basis. A landmark event, which
happened in India in May 09, is the implementation of the New Pension Scheme, which
will benefit both government sector and private sector employees. It will allow
employees the choice of fund managers and asset classes including equities (to which
they can allocate up to 50% of their portfolio). This will help create a steady flow of
long-term money to the Indian equity markets.
In May 09, the market focused on the domestic political scene, where results of the
current Central Government elections drove sentiment. Results of the Federal Reserve
administered stress test on large US banks, publication of other leading indicators of the

various developed economies and the global effort to control the swine flue epidemic also
had a tough impact on overall sentiment throughout the world.
Past Year Strategy- The yield movement for the last 5 months of the year 08-09 shown in
graph as under:
10 Yr Yield
10 YEAR YIELD 15 Yr Yield
8.5
8
YIELD
7.5
6.5
14/11/200 04/12/200 24/12/200 13/01/200 02/02/200 22/02/200 13/03/200 02/04/200 22/04/200 12/05/200 01/06/200
7 7 7 8 8 8 8 8 8 8 8
DATE
For financial year 2008-09, the 10 year G sec yield on 8.24% 2018 GS 2018 was 7.92%
(Price Rs 102.10). The sentiment in the market had weakened due to higher inflation.
c. Analysis of Bank’s Portfolio
As we look into the various investments made in the two fiscal years, we need to take a
clear view of the market scenario of that particular period. Current period can be seen as
the toughest period of recession in the past few decades. Not going into much known
details, the focus can be centered on the financial and mainly, the investment situation.
Due to oversupply in the market, the fiscal stimulus turned out to be a disaster in terms of
lending pattern of various international banks. This led to high inflation, which in turn,
led to interest rate cut. This vicious cycle of lending and borrowing then paved way to
increase in money supply and hence, increase in bond prices. People begin to make faster
money. Now all these cause and effects made a great impact on the duration of the bond
prices. The “duration” can be specified here as the actual timing of acquirement of the
principal of the coupon. Duration is the deciding factor for all type of investments,
whether long term or short term. This duration also seeks to increase or decrease the
pricing of various government or private bonds. So, it is very important to know that
when interest rate movement takes place, the short term bond prices tend to fluctuate less
while the long term bond prices fluctuate less in comparison to the short term ones.
Hence, when the prices go downward, it increases the duration i.e. the return of the

coupon takes a longer time, which definitely hurts the profitability sentiment of the
investor.
The exhaustive data regarding the Investments done by SBBJ for the previous year as
well as the current year is given in the section of Appendices.
As per the SBBJ investment guidelines (chapter-10) states that the entire investment
portfolio of the bank (including SLR securities and Non-SLR securities) will be classified
under three categories viz. ‘Held to Maturity’, ‘Available for Sale’ and ‘Held for
Trading’. However, in the balance sheet, the investments will continue to be disclosed as
per the existing six classifications viz. (I) Govt. securities (ii) Other approved securities
(iii) Shares (iv) Debentures & Bonds (v) Subsidiaries/Joint Ventures (vi) Others (CP,
Mutual Fund Units etc.). In terms of above RBI guidelines the investments included
under ‘Held to Maturity’ should not exceed 25% of the banks total investments.
However, banks have been allowed (in September 2, 2004) to exceed the limit of 25 per
cent of total investments under HTM category provided:
• the excess comprises only of SLR securities, and
• the total SLR securities held in the HTM category is not more than 25 per cent of
the DTL as on the last Friday of the second preceding fortnight.
The details of the portfolios are given in the Annexure section of the report. It is for
the reference purpose. The portfolios are for the year 2007-08, 2008-09.

9) SCOPE OF TREASURY PRODUCTS FOR RETAIL CUSTOMERS
a. The Concept
Product innovation is an integral part of any market development. Generally, at the

beginning market participants try out the new product to see how it fits into their business
model. But to have a continuing commitment from the market participants, the product
must stand out on its own. So, for the same, every organization needs to reinvent itself
and come out with innovative or interesting (advantageous at the same time) to maintain
and grow its market share and position.
Retail banking is important for millions of consumers worldwide and has a vital role to
play in financial services industry of countries across the globe. The sector has moved
forward on many fronts, from branches to the Internet; from brands to business strategies;
and from off-the-shelf products to structured offerings. Today, consumers have
increasingly started to take control of their personal finances and shop for various
services in an increasingly competitive marketplace & banks have responded by offering
a blend of traditional and contemporary financial services. The thriving financial markets
and de-regulation (read lesser regulations) has attracted customers to increasingly invest
in overseas markets. Banks see a huge opportunity in this area as these customers
instinctively turn to their bankers for their foreign exchange needs. As customers are
becoming better informed, banks face challenges in providing attractive exchange rates
and service the request to the satisfaction of the customer. Technology has enabled them
in quick client servicing, transaction matching, efficient accounting, regulatory
compliances tracking & many more.
b. Role of SBBJ Brand Value & Policies
SBI is ranked 69 in the latest survey of most valued and known brands all over the world,
with a brand value of $1.44 billion, down from $2.852 billion. However, if SBI’s
associate banks, SBBJ being one of the three, were added to the score—as was done last
year—then its ranking would have jumped to 56 and brand value to $1.87 billion. SBBJ
is the one of the most known name in the banking sector all over its home state and still it
has managed to increase its customer base even when a number of private banks are
coming up. Also, there is no doubt in the fact that SBBJ is not behind in its role of
corporate governance. SBBJ is one of the pioneers in banking in remote areas. The bank
has been holding the number one position in Rajasthan in financing entrepreneurs under
Prime Minister's Rozgar Yojana Scheme consecutively for the last 5 financial years. The
bank has been amongst the first few PSB in the country to migrate all the branches to
Core Banking Solution (CBS). Also during 2007-08, the bank has launched many value
added services for its customers including the facility of Deduction of Tax at Source and
e-payment of excise duties/service tax. The bank has also declared the year 2008-09 as
the " Year of Retail and Customer Service".

These insights are enough to prove the point that SBBJ carries a high brand value which
would be very helpful once the bank is ready to take the plunge and get into new avenues
of banking like the ones suggested in this report. Better customer service will obviously
lead to a more satisfied customer. In this way, the bank would not only be benefited
financially but also gain more clientele base all over the country.
c. Real Time Gross Settlement & National Electronic Fund Transfer
The acronym "RTGS" stands for Real Time Gross Settlement. RTGS system is a funds
transfer mechanism where transfer of money takes place from one bank to another on a
"real time" and on "gross" basis. This is the fastest possible money transfer system
through the banking channel. Settlement in "real time" means payment transaction is not
subjected to any waiting period. The transactions are settled as soon as they are
processed. "Gross settlement" means the transaction is settled on one to one basis without
bunching with any other transaction. It is required for the following reasons:
a. Speedy settlement of large transactions is very necessary for an
active and sustainable market.
b. Use of monetary management tools becomes simpler and more
effective.
Considering that money transfer takes place in the books of the Reserve Bank of India,
the payment is taken as final and irrevocable. The RTGS system is primarily for large
value transactions. The minimum amount to be remitted through RTGS is Rs.1 lakh.
There is no upper ceiling for RTGS transactions. Under normal circumstances the
beneficiary branches are expected to receive the funds in real time as soon as the
remitting bank transfers funds. The beneficiary bank has to credit the beneficiary's
account within two hours of receiving the funds transfer message. The remitting bank
receives a message from the Reserve Bank that money has been credited to the receiving
bank. Based on this the remitting bank can advise the remitting customer that money has
been delivered to the receiving bank. . It is expected that the receiving bank will credit
the account of the beneficiary instantly. If the money cannot be credited for any reason,
the receiving bank would have to return the money to the remitting bank within 2 hours.
Once the money is received back by the remitting bank, the original debit entry in the
customer's account is reversed. Generally, the minimum/maximum amount for
RTGS/NEFT transactions under Retail Internet Banking is:
Type Minimum Maximum
RTGS Rs. 1 Lakh Rs. 5 Lakh
NEFT No Limit Rs. 5 Lakh
Whereas, the minimum/maximum amount for RTGS/NEFT transactions under Corporate Internet
Banking is:

Type Minimum Maximum
RTGS Rs. 1 Lakh No Limit
NEFT No Limit No Limit
On a typical day, RTGS handles about 14000 transactions a day for an approximate value
of Rs.1, 50,000 crore. RTGS in
National Electronic Funds Transfer (NEFT) system is a nation wide funds transfer system
to facilitate transfer of funds from any bank branch to any other bank branch. As on
December 31, 52427 branches of 89 banks are participating. Steps are being taken to
widen the coverage both in terms of banks and branches. There is no restriction of centres
or of any geographical area inside the country. The system uses the concept of centralized
accounting system and the bank's accounts, which are sending or receiving the funds
transfer instructions, gets operated at one centre, i.e. Mumbai only. The individual
branches participating in NEFT could be located anywhere across the country. The
beneficiary gets the credit on the same day or the next day depending on the time of
settlement.
The records for the SBBJ business done in RTGS and NEFT are shown below for a
general reference purpose:
Performance Highlights For The Year Ended March 2009
2007-2008 2008-2009 % change

RTGS No. of Amount No. of Amount No. of Amount
txns. (Rs in txns. (Rs in txns. (Rs in
Crores) Crores) Crores)
Inward 107844 144728.93 216258 172383.52 140.82 38.26
Outward 116716 179342.56 294831 224065.07 152.27 44.61
TOTAL 224560 224071.49 511089 396448.59 197.59 82.87
NEFT No. of Amount No. of Amount No. of Amount

txns (Rs in txns. (Rs in txns. (Rs in
Inward 37246 194.46 156478 760.80 325.14 291.23
Outward 12134 71.06 73270 365.75 503.84 414.54
TOTAL 49380 265.52 229748 1126.55 368.28 324.22
GRPT No. of Amount No. of Amount No. of Amount

txns (Rs in txns (Rs in txns (Rs in
Inward 842* 293.09 22122 5295.44 - -
Outward 239* 17.88 10437 1773.69 - -

TOTAL 1081* 310.97 32559 7069.13 - -
* Started in February 2008
¾ PSG has managed and monitored the fund requirements of the branches promptly
and efficiently.
¾ All entries have been resolved during the year.
¾ TURNOVER: The number of transactions has increased from 275014 as on
31.03.2008 to 773296 as on 31.03.2009 showing an increase of 181.18%.
¾ COMMISSION: The commission earned during the year is Rs 3, 57, 80,213.12.
¾ INITIATIVES: As per the instructions of RBI, the concept of CFC (Customer
Facilitation Centre) was introduced at PSG, Mumbai by our bank and all the
queries from customers and other banks’ branches have been resolved quickly.
d. Foreign Currency Non Resident (Bank) Account (FCNRB)

Foreign Currency Non Resident (Banks) account is an investment avenue available to
NRIs. Accounts can be opened only in the form of term deposits and can be maintained
in four currencies viz. Pound sterling, US Dollar, Japanese Yen and the Euro.
Repayments, under this scheme, are made in foreign currency and therefore it offers the
depositor protection against exchange rate fluctuations. The tenor of the scheme ranges
from 12 months to 36 months. FCNR (B) loans are a low cost, short-term funding source
available to Indian corporate. Banks have been permitted to provide foreign currency
denominated loans to their customers from the resources mobilized under the FCNR (B)
scheme. RBI granted this permission to help banks to deploy their FCNR funds in a more
commercially viable manner and make available a better avenue of credit at cheaper
interest rates to resident borrowers. At the same place, FCNR (B) loans are a very crucial
facility provided by the banks where No special permission is required from the
regulatory authorities for availing FCNR (B) loans and the existing rupee credit limits
can be converted into a foreign currency loan. The interest rates and the tenor of the loans
are left free to be decided by negotiation between banks and borrowers. They are
generally granted for period up to three years. Normally, loans under this scheme are not
given for an amount less than USD 100,000. Loans are generally denominated in the four
currencies in which FCNR deposits are accepted viz. US Dollar, Euro, Japanese Yen and
Pound Sterling, the US Dollar being the most popular currency of choice.
e. Possibility of Application of the concept

There are great avenues of the treasury products to get to the market for individual
customers. A customer today looks for versatility in his profile. So, if the Bank is
providing for new initiatives like that of CFC, it is definitely possible to apply at least a

few of other retail concepts to Core Banking Services. Adopting novel concepts not only
enhances the brand position that the institution carries but also continuous improvements
lead to a refined intellect at the organization. The retailing, though is not absolute a
novice to SBBJ, expanding its roots into the core services of the Bank
f. Assessment through primary data collection (Questionnaire)
It is very important to know about the actual requirement in the market, like what is the
demand supply gap in the market and if there is a requirement of new services, in terms
of customer expectations. For this purpose, a direct approach will be helpful. So, a
questionnaire is prepared and data is collected from 100 people belonging from various
professions including 15 people of treasury department. The department officials’ inputs
can be useful as they experience the day to day hurdles and know about what the
customers want more from the bank and if there are any ways by which both the parties
be benefited. The questions included are divided into three sections to avoid ambiguity in
analysis. The three sections are divided as risk appetite and investment pattern,
knowledge of investment and return objectives comprising the first section having sixteen
questions of the questionnaire. The second section enquired about the individual’s
knowledge of treasury and investments products as which monetary instruments make up
a viable option to invest having five questions. And, the last section included customer
expectations asking information as a customer service survey about what a bank
customer, especially a State Bank customer is expecting in terms of new services and
how can be the present scenario can be improvised. Out of 100 people to whom the
questionnaire was sent, 85 questionnaires returned and out of these, 72 were valid as per
the requirement of filled up options and single option choices. The filled up
questionnaires mainly consisted of age group of 21-40. This age group being the earning
and investing age group is the most important for the survey.
g. Change in profitability of the Bank
RTGS can benefit the Bank in various ways like:

i. It would pave way to better customer service.
ii. It has lower transaction costs involved init.
iii. It would reduce the workload on the Bankers immensely as lesser
manual work is involved in RTGS.
iv. Daily reconciliation would lead to a dip in manual errors increasing
efficacy and at the same time the organization credibility.
v. Better, efficient and optimum method for meeting CRR and other
obligations.
vi. Higher revenue by way of commission.
vii. No grid- lock/ settlement risk.
viii. No more inter bank settlement would be required.

NEFT proves very helpful to the bank as the RBI-EFT system is confined to the 15
centres where RBI is providing the facility, where as there is no such restriction in NEFT
as it is based on the centralized concept. The detailed list of branches of various banks
participating in NEFT system is available on our website. The system also uses the state-
of-the-art technology for the communication, security etc, and thereby offers better
customer service. NEFT is an electronic payment system to transfer funds from any part
of country to any other part of the country and works on Net settlement, unlike RTGS
that works on gross settlement and EFT which is restricted to the fifteen centers only
where RBI offices are located. There is no value limit for individual transactions. Indian
Financial System Code (IFSC) is an alpha numeric code designed to uniquely identify the
bank-branches in India. This is 11-digit code with first 4 characters representing the
banks code, the next character reserved as control character (Presently 0 appears in the
fifth position) and remaining 6 characters to identify the branch. The MICR code has 9
digits to identify the bank-branch.
h. Advantage to the Retail customer

Retail customers can be provided with a structure to provide medium to long-term capital
appreciation by investing in stocks across the market capitalization range. This scheme
can be taken to be a mix of moderate and aggressive investment strategies.
RTGS system is very beneficial to the Retail customers in the following ways:
i. The RTGS payment mechanism is much safer than cheques.

ii. They can’t get lost or stolen.
iii. It eliminates postal/ courier expenses.
iv. Ensure rapid, timely and accurate transactions.
v. There is no fear of refunds as in clearing.
vi. The payments made are unconditional and irrevocable.
vii. Payment is risk free.
viii. Wider coverage with more than 47000 branches of various
banks being RTGS enabled.

10) SUGGESTIONS TO INCREASE IN PROFITABILITY
Treasury is the most important function of any commercial Bank. Apart from maintaining
CRR and SLR as required by the RBI and Government regulations, Treasury can act as a
profit centre for the Bank. In most of the Banks, treasury, in addition to managing
liquidity, is responsible for managing assets and liabilities, trading in currencies and
securities, and developing new products. High-performing treasuries systematically
identify, mitigate, and profit from market risk—that is, risk associated with changes in
interest rates.
Despite unfavorable market conditions during the financial year 2008-09, SBBJ Treasury
posted as increase in profits by 10.19 per cent to Rs 76.02 crore against last year profit of
Rs 68.99 crore. Most of the treasury profits came from sale of government securities and
investments in liquid mutual funds.
To increase the treasury profits in the coming years, the Bank can explore following
measures:
a. To support the dealers, a well-equipped research team is required,

particularly for investments in equity, mutual funds and Non SLR Bonds.
b. Non-SLR bonds market is expanding very fast, but the bank is not investing
aggressively in the market. Non-SLR bonds provide better yields than SLR
securities.
c. Though the Bank has an approved policy for trading in derivatives, the
activity in derivatives has not been started. In the complex financial market
scenario where there is a lot of uncertainty, appropriate derivative
instruments can hedge interest rate risk. Also, trading in derivatives can be
source of additional profits.
d. A suitable incentive structure should be formalized to increase trading
profit in the treasury. Performance based incentives can be introduced in
line with treasuries of other Banks.
e. Working in treasury requires skills that come with experience. It is a
specialized job that requires totally different skills than normal banking
operations. So, the Bank should consider selection and retention of
qualified, skilled and experienced officers.
f. Treasury Department is also using distinct ARN number for cross selling of
Mutual Funds. But, this business is restricted only on reciprocal basis with
other associate banks treasuries. Bank can set up marketing and sales team
to sell these products to other institutional investors, HNIs and corporate to
earn extra income. The expert knowledge of treasury officials can also be
provided to the branches to sell the market related products to the retail
customers.

g. PORTFOLIO MANAGEMENT SERVICES (PMS)
Portfolio Management Services System can be set up in SBBJ

to handle investment and regulatory related concerns of
Institutional and high net worth investors. Other Banks
including State Bank of India is also providing similar
facilities. In the increasingly complex regulatory and
investment environment of today, even the most sophisticated
investors are finding it difficult to address day to day
investment concerns such as adherence to stated investment
objectives, security selection quality considerations,
Conformity to policy constraints and Investment returns.
The suggestions given are a perception as a result of the understanding of the functioning
of the department. These can be proved fruitful if are implied on a basis of practicality
and feasibility, which may vary place-to-place and organization-to-organization.

11) ANNEXURE, APPENDIX AND LIST OF ABBREVATIONS
Annexure- I
QUESTIONNAIRE
PERSONAL INFORMATION
1) Name (optional) - __________________
2) Age-
21-30 31-40 41-50 51-60 60 or over
3) Gender- Male Female
4) Your Occupation- ______________________
5) Organization (optional) - ________________________
6) Contact details - _________________________
7) E-mail ID- __________________________
8) Your current annual take-home income is:

Under Rs.100,000
Between Rs.100,000 and Rs.200,000
Between Rs.200,000 and Rs.500,000
Between Rs.500,000 and Rs.10,00,000
Over Rs.10,00,000
A. RISK TOLERANCE, RETURN OBJECTIVES & INVESTMENT PATTERN

1) How good is your knowledge of finance?
I'm an expert in the field of finance
I'm proficient in finance

I don't know much about finance but I keep myself updated about the
developments
Limited to knowing things like how the stock market is moving
I'm totally zero as far as knowledge of finance is concerned
2) When it comes to investing in stock or bond mutual funds (or individual stocks
and bonds), I would describe myself as a/an...
Very inexperienced investor Somewhat inexperienced investor
Somewhat experienced investor Experienced investor
Very experienced investor
3) What is your primary objective for accumulating assets?
Wealth preservation or emergency savings
Purchase of a home
Education funding
Retirement planning/long term wealth accumulation
4) Do you invest through Systematic Investment Planning (SIP)?

Yes No
5) I consider myself knowledgeable enough about the risks and potential returns
associated with investing in stocks and other types of stocks
Strongly Agree Partially Agree Do not Agree

Strongly Disagree
6) What is the time horizon you have to achieve your financial goal?
0-5 years
6-10 years
11-14 years
15 years or longer
7) What factor would you consider most important before choosing an
investment?

How quickly I will be able to increase my wealth
The opportunity for steady growth
The amount of monthly income the investment will generate.
The safety of my investment principal.
8) Using a scale of 1—5 (1 being least important and 5 being most important) circle the
number that signifies the importance of accomplishing the following:
Least Important Most Important
1 2 3 4 5 Ans.
A. Preserve my net worth ____
B. Stay ahead of future inflation ____
C. Increase my current investment income ____
D. Fund college education ____
E. Reduce my current tax burden ____
F. Accumulate future income/wealth accumulation ____
G. Invest for retirement ____
9) How long do you expect to have your assets invested before converting to cash?
Less than 3 years 3-5 years 5-7 years
7-10 years 10-15 years 15 –20 years or more
10) As an investor, where would you place yourself on a scale of 1-5 (as per the previous
criteria?)
A. Minimize losses and fluctuation as much as possible ____
B. A balanced mix with some fluctuation and growth ____
C. Maximum accumulation of assets regardless of risk or fluctuation _____
11) Based on your investment goals, which of the following objectives best describes
your desired investment approach? (Write one option below)
A. Current Income (Emphasis on maintaining purchasing power while generating high
current income, with the opportunity for liquidity and preservation of capital.)
B. Capital Preservation (Emphasis on capital preservation and liquidity with moderate
current income and limited capital appreciation.)
C. Conservative Growth &Income (Emphasis on conservative growth of capital and
inflation protection with current/future income and liquidity, providing small potential for
loss.)
D. Balanced (Emphasis on inflation protection through intermediate term asset growth,
with the opportunity for current/future income and liquidity.)
E. Capital Growth (Emphasis on capital growth and inflation protection, with the
opportunity for current/future income and liquidity.)
F. Aggressive Growth (Emphasis on aggressive capital appreciation with likelihood of
high fluctuation in asset value along with inflation protection and current/future income.)
G. Total Equity (Emphasis on maximum long-term capital appreciation with likelihood
of high fluctuation in asset value along with inflation protection.)
Answer- ______

12) Do you expect to save a similar amount that you generally save per year in the next
few years?
Yes No
13) I can tolerate sharp ups and downs in the short-term value of my investments in
return for potential long-term gains
Strongly Agree Agree Disagree Strongly Disagree
14) When the market goes down, I tend to sell some of my riskier investments and put the
money in safer investments. I disagree I somewhat agree
I agree
15) Which of the following investments would you feel most comfortable with taking
into consideration the risk return trade-off? Equity securities of established companies
Mix of equity securities and government bonds Government bonds
Certificate of deposit
16) Risk tolerance is the relative ability to accept measurable losses in the short-term in
exchange for expected higher returns long-term. My tolerance for risk is: Very high
Moderately high Average Moderately low Very low
B. KNOWLEDGE OF TREASURY PRODUCTS & RETAIL INVESTMENTS

1) Do you have any knowledge of Treasury Department of a Bank?
Yes No
2) Do you invest in Equity/ Mutual Funds market/ stocks?

Yes No
3) If yes, do you invest/ trade online?

Yes No
4) If Yes, you invest through: (please tick one)

Online trading
Brokers
Both
5) If you are dealing through brokers (on phone), do you want to trade/ invest online?
Yes No
C. CUSTOMER EXPECTATIONS

1) Do you want your bank to do Wealth Management and Risk Management for you?
Yes No
2) If yes, then your preferred Investment will be, (please tick one)
Government securities Bank deposit
Equity market Mutual fund
Others, please specify ____________________________
3) Do you want your Tax Planning to be done by your Bank?

Yes No
4) If yes, then your preferred Tax saving Investment Options, (rank as 1 being least and 4
being highest)
PPF NSC
ELSS (Equity Linked Saving Scheme) Tax free Bank Deposits
5) Do you expect to get regular updates about various Investment options from your Bank?
Yes No
6) Do you want personalized Investment advising at your branch/ city?

Yes No
7) At present, is your branch advising you on your Investment Portfolio Management?

Yes No
* * *
Annexure-II

. STATE BANK OF BIKANER AND JAIPUR
TREASURY AND INVESTMENT DEPARTMENT
INVESTMENT PORTFOLIO
(Rs. in crore)
As on 31-Mar-09 Face Value Book Value Market Value Appreciation Depreciation Net Depreciation Amortisation Net Depreciation/
Amortisation
(i) Central Govt. Securities required
(a) Available for Sale 891.744000000 918.692124336 912.711075100 19.506183632 25.487232868 5.981049236 0.000000000
(b) Held to Maturity 5937.584000000 6144.549059904 6144.549059904 0.000000000 0.000000000 0.000000000 0.000000000
(c) Held for Trading 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
Total 6829.328000000 7063.241184240 7057.260135004 19.506183632 25.487232868 5.981049236 0.000000000
(ii) Govt. Treasury Bills
Total 1315.045000000 1217.710803764 1217.710803764 0.000000000 0.000000000 0.000000000 0.000000000
(iii) State Govt. Securities
Total 2150.655100000 2133.580025140 2133.060235732 0.417435592 0.937225000 0.519789408 0.000000000
1 Total Govt. Securities
Available for Sale 2241.677000000 2173.542495300 2167.041656656 19.923619224 26.424457868 6.500838644 0.000000000 6.500838644
Held to Maturity 8053.351100000 8240.989517843 8240.989517843 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
Held for Trading 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
(i+ii+iii) 10295.028100000 10414.532013143 10408.031174499 19.923619224 26.424457868 6.500838644 0.000000000 6.500838644
2 Other Trustee Securities
(a) Available for Sale 7.000000000 6.969200000 6.686861000 0.018544000 0.300883000 0.282339000 0.000000000 0.282339000
(b) Held to Maturity 67.302211000 67.153511000 66.325771000 0.000000000 0.827740000 0.827740000 0.000000000 0.827740000
Total 74.302211000 74.122711000 73.012632000 0.018544000 1.128623000 1.110079000 0.000000000 1.110079000
3 Shares
Held for Trading 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
Total 13.354745600 90.300704548 84.515952043 38.713279068 44.498031573 5.784752506 0.000000000 5.784752506
4 Debentures & Bonds
Total 125.532159900 125.711188275 123.057732035 1.003500000 3.656956240 2.653456240 0.000000000 2.653456240
5 Sub./Joint Ventures
6 Others (CP, MFs etc.)
Total 338.087637890 370.493954711 310.176040126 7.097859738 67.415774323 60.317914585 0.000000000 60.317914585
Total Portfolio under:
(c) Held for Trading 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
Grand Total (a+b+c) as on31.03.09 10846.304854390 11075.160571677 10998.793530703 66.756802030 143.123843004 76.367040974 0.000000000 76.367040974
Investment in REPO as on 31.03.09 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
Investment on 31.03.09 (net of REPO) 10846.304854390 11075.160571677 10998.793530703 66.756802030 143.123843004 76.367040974 0.000000000 76.367040974
Investment on 31.03.08 $ (net of REPO) 10129.671173200 10566.079443346 10512.173774775 57.420211216 111.325879788 67.719399973 0.000000000 67.719399973
Written cff 77.767455912 0.000000000 79.494355896
Growth over 31-Mar-2008 716.633681190 509.081128331 486.619755928 9.336590814 31.797963216 86.415096914 0.000000000 88.141996898
* The amount of depreciation/provision of NPA bonds cannot be set off against the appreciation available
49
STATE BANK OF BIKANER AND JAIPUR
TREASURY AND INVESTMENT DEPARTMENT
INVESTMENT PORTFOLIO
(Rs. in crore)
As on 31-Mar-08 Face Value Book Value Market Value Appreciation Depreciation Net Depreciation Amortisation Net Depreciation/
Amortisation
(i) Central Govt. Securities required
Total 6990.814000000 7351.957911467 7311.750302261 8.429316592 48.636925798 40.207609206 0.000000000
(ii) Govt. Treasury Bills
Total 415.107500000 398.361635000 398.361635000 0.000000000 0.000000000 0.000000000 0.000000000
(iii) State Govt. Securities
(a) Available for Sale 475.853000000 480.226632402 481.514826336 3.845570130 2.557376196 -1.288193934 0.000000000
Total 1974.018100000 1967.299330724 1968.587524658 3.845570130 2.557376196 -1.288193934 0.000000000
1 Total Govt. Securities
Available for Sale 2508.106500000 2503.980953543 2469.410475436 12.274886722 46.845364829 34.570478107 0.000000000 34.570478107
Held to Maturity 6746.833100000 7085.673986483 7085.673986483 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
Held for Trading 125.000000000 127.963937165 123.615000000 0.000000000 4.348937165 4.348937165 0.000000000 4.348937165
(i+ii+iii) 9379.939600000 9717.618877191 9678.699461919 12.274886722 51.194301994 38.919415272 0.000000000 38.919415272
2 Other Trustee Securities
Total 86.624811000 86.405334750 85.757271750 0.000209500 0.648272500 0.648063000 0.000000000 0.648063000
3 Shares
Held for Trading 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
Total 13.505664000 96.496093206 107.579116516 37.118106516 26.035083206 2.754400000 0.000000000 2.754400000
4 Debentures & Bonds
Total 109.490177400 109.669205775 105.367466911 0.000000000 4.301738864 4.301738864 0.000000000 4.301738864
5 Sub./Joint Ventures
6 Others (CP, MFs etc.)
Total 540.095782200 555.709934470 534.614151634 8.027008478 29.122791314 21.095782836 0.000000000 21.095782836
Total Portfolio under:
(c) Held for Trading 125.000000000 127.963937165 123.615000000 0.000000000 4.348937165 4.348937165 0.000000000 4.348937165
Grand Total (a+b+c) as on31.03.08 10129.656034600 10565.899445392 10512.017468730 57.420211216 111.302187879 67.719399973 0.000000000 67.719399973
Investment in REPO as on31.03.08 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
Investment on31.03.08 (net of REPO) 10129.656034600 10565.899445392 10512.017468730 57.420211216 111.302187879 67.719399973 0.000000000 67.719399973
Investment on 31.03.2007 $ (net of REPO 8182.772730491 8831.110791436 8715.898119374 46.697873863 161.910545925 147.437663175 0.000000000 147.437663175
Written cff 104.496912042 0.000000000 104.496912042
Growth over 31-Mar-2007 1946.883304109 1734.788653956 1796.119349356 10.722337353 -50.608358046 24.778648840 0.000000000 24.778648840
* The amount of depreciation/provision of NPA bonds cannot be set off against the appreciation available
50
Appendix
1) Basel II- It is the second of the Basel Accords, which are recommendations on
banking laws and regulations issued by the Basel Committee. It is an international
standard that banking regulators can use when creating regulations about how much
capital banks need to put aside to guard against the types of financial and operational
risks banks face.
2) Asset Liability Management- ALM is the practice of managing risks that arise due to
mismatches between the assets and liabilities (debts and assets). It is a strategic
management tool to manage interest rate risk and liquidity risk faced by banks, other
financial services companies and corporations done by matching the assets and liabilities
according to the maturity pattern or matching the duration, by hedging and by
securitization
3) Coupon Rates- A coupon rate of a bond is the amount of interest paid per year
expressed as a percentage of the face value of the bond paid by the bond issuer to a
bondholder.
4) Vanilla option- A plain vanilla option is the standard type of option, one with a
simple expiration date and strike price and no additional features. With an exotic option
an additional contingency is added so that the option only becomes active once the
underlying stock hits a set price point.
5) Security receipt-
6) Non-bank financial companies- NBFCs are financial institutions that do not meet the
legal definition of a bank, i.e. one that does not hold a banking license. NBFCs facilitate
bank-related financial services, such as investment, risk pooling and market brokering.
Examples of these include insurance firms, currency exchanges. However, they are not
allowed to collect deposits from customers.
7) Private Placement Basis- It is the term given for raising capital via private rather than
public placement. The result is the sale of securities to a relatively small number of
investors due to which, the placement does not have to be registered with the Securities
and Exchange Commission. Investors involved in private placements are usually large
banks, mutual funds, insurance companies, and pension funds.
8) Arbitrage trading- the act of buying asset/ security in one market and selling
simultaneously in another. This restores equilibrium in various markets, which are
temporarily out of equilibrium
9) Proprietary trading- is a term used in investment banking to describe when the firm's
traders actively trade stocks, bonds, options, commodities, derivatives or other financial
instruments with its own money as opposed to its customers' money, so as to make a
profit for itself.
10) Capital Asset Pricing Model- The CAPM is a model that describes the relationship/
trade off between risk and return. It explains the behaviour of security prices and
provides the mechanism to assess the impact of a proposed investment on a portfolio.
11) Redemption Yield- It is just another name given to Yield to Maturity.

* * *
Abbreviations-
1) DFHI- Discount and Finance House of India
2) KYC- Know Your Customer
3) FCY- Foreign Currency
4) DVP- Delivery vs. Payment
5) SPV- Special Purpose Vehicle
6) Rf- Risk free rate of return
7) NCD- Non- Convertible Debenture
8) CRISIL- Credit Rating Information Services of India Ltd.
9) ICRA- Investment Information and Credit Rating Agency of India Ltd
10) CARE- Credit Analysis and Research Ltd.
12) REFERENCES
1. http://sbbjbank.com/About_Us/history.htm
2. http://sbbjbank.com/About_Us/bnk_visionmission.htm
3. http://www.fimmda.org/useful_links/faq.asp
4. http://www.rbi.org.in/scripts/FAQView.aspx?Id=60
5. http://www.rbi.org.in/scripts/BS_EntireSearch.aspx?searchString=treasury
6. www.investopedia.com
7. www.crisil.com
8. www.sebi.gov.in
9. http://www.ccilindia.com
10. http://www.amfiindia.com/showhtml.aspx?page=mfconcept
11. www.bankingrules.com
12. http://www.eurojournals.com/irjfe_19_15.pdf
13. http://en.wikipedia.org/wiki/Investment
14. http://www.sorted.org.nz/home/sorted-sections/investing/investment-types
15. http://www.answers.com/topic/statutory-liquidity-ratio#cite_note-0
16. http://www.sbidfhi.com/non-slr-bonds.htm
17. http://en.wikipedia.org/wiki/Talk:Investment_banking
18. http://www.answers.com/topic/statutory-liquidity-ratio
19. https://www11.ingretirementplans.com/webcalc/jsp/ws/typeOfInvestor.jsp

20. www.mfsiweb.com/uploaded_files/InvestmentQuestionnaire.pdf
21. http://www.docstoc.com/docs/3606566/Retail-Wealth-Management-Strategic-
Asset-Allocation-Questionnaire-Advisor-name-Client
22. http://www.rbctrust.com/questionnaire/index.html
23. http://www.rbi.org.in/scripts/bs_viewrtgs.aspx
24. http://rbidocs.rbi.org.in/rdocs/RTGS/DOCs/ListofRTGSBanks.xls
25. http://rbi.org.in/scripts/FAQView.aspx?Id=60
26. http://en.wikipedia.org/wiki/Modern_portfolio_theory
27. http://www.livemint.com/2009/02/01230443/World8217s-top-500-banks-wi.html
28. http://www.religare.in/portfolio_management_services.asp
29. http://www.motilaloswal.com/Retail/RetailContents.aspx?ArticleID=cb84acb6-
c32c-469f-83d9-f72a78d8481e
30. http://sawaal.ibibo.com/personal-finance-and-tax/who-know-about-portfolio-
management-services-451338.html
31. http://economictimes.indiatimes.com/articleshow/msid-2568329,flstry-
1.cmshttp://content.icicidirect.com/Whyonline.asp
32. http://www.investopedia.com/articles/bonds/07/fiportfolio.asp
33. http://www.indoindians.com/money/whyinvest.htm
34. http://www.investopedia.com/articles/04/111804.asp
35. http://www.investopedia.com/articles/bonds/07/fiportfolio.asp
36. http://en.www.wikipedia.org/wiki/Basel_II
37. http://www.zensar.com/industries_BankingRetail.html
38. http://www.fsa.gov.uk/pages/Library/Communication/Speeches/2006/1102_cb.sht
ml
Articles & Books Referred

1) Background Paper on RTGS Functionality
28th June 2008; By A K Kale, AGM (Payment Settlement Group)
T & I Department, Mumbai
2) Article of treasury Functions and Why It Gains Importance; Myers & Mjluf, 1984
Chastain, 1986; Harford, 1999
3) Financial Management, Text and Problems; By M Y Khan & P K Jain

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ANALYSIS OF BANK’S INVESTMENTS IN SLR

SECURITIES, SCOPE OF TREASURY PRODUCTS

UNDER THE GUIDANCE OF

K. J. Somaiya Institute of Management Studies & Research,

K.J.Somaiya Institute of Management Studies and Research, Mumbai 1

K.J.Somaiya Institute of Management Studies and Research, Mumbai 2

BACKGROUND- Treasury Management is one of the most important functions of a

METHODOLOGY- This is an exploratory research work in which primary data was

K.J.Somaiya Institute of Management Studies and Research, Mumbai 3

K.J.Somaiya Institute of Management Studies and Research, Mumbai 4

K.J.Somaiya Institute of Management Studies and Research, Mumbai 5

K.J.Somaiya Institute of Management Studies and Research, Mumbai 6

K.J.Somaiya Institute of Management Studies and Research, Mumbai 7

K.J.Somaiya Institute of Management Studies and Research, Mumbai 8

K.J.Somaiya Institute of Management Studies and Research, Mumbai 9

Money Market Instruments

1) Certificate of Deposit (CD)

Mumbai Inter-bank Offer Rate - MIBOR

K.J.Somaiya Institute of Management Studies and Research, Mumbai 10

ii. Forex Treasury:

Cross Currency Rates:

London Interbank Offer Rate - LIBOR

K.J.Somaiya Institute of Management Studies and Research, Mumbai 11

Treasury management or basic cash management propitiates the development of

K.J.Somaiya Institute of Management Studies and Research, Mumbai 12

3.) INVESTMENT: AN OVERVIEW

K.J.Somaiya Institute of Management Studies and Research, Mumbai 13

The style / profile is determined by

A majority of investment banks offer strategic advisory services for mergers,

K.J.Somaiya Institute of Management Studies and Research, Mumbai 14

i. Short term deposits

Bank savings accounts:

K.J.Somaiya Institute of Management Studies and Research, Mumbai 15

Bank fixed term investments:

Owning property rented to individuals or businesses can be a safe and profitable

K.J.Somaiya Institute of Management Studies and Research, Mumbai 16

K.J.Somaiya Institute of Management Studies and Research, Mumbai 17

The objectives of SLR are:

K.J.Somaiya Institute of Management Studies and Research, Mumbai 18

b. Classification of SLR Investments

(a) It intends to hold the financial asset for an undefined period;

K.J.Somaiya Institute of Management Studies and Research, Mumbai 19

(III) Available for Sale

C. Types of SLR Investments

The SLR Investments are generally done in the form of:

i. Government Securities Market

1) Demand for money,

K.J.Somaiya Institute of Management Studies and Research, Mumbai 20

K.J.Somaiya Institute of Management Studies and Research, Mumbai 21

K.J.Somaiya Institute of Management Studies and Research, Mumbai 22

K.J.Somaiya Institute of Management Studies and Research, Mumbai 23

The Non-SLR Investments are classified into:

b. Equity Mutual Funds

K.J.Somaiya Institute of Management Studies and Research, Mumbai 24

Mutual Fund Operation Flow Chart

The advantages of investing in a Mutual Fund are:

K.J.Somaiya Institute of Management Studies and Research, Mumbai 25

c. Debt Mutual Funds:

Fixed Deposits generally have a lock-in-period wherein in a pre-mature withdrawal by an

K.J.Somaiya Institute of Management Studies and Research, Mumbai 26

K.J.Somaiya Institute of Management Studies and Research, Mumbai 27

Commercial Paper is an unsecured money market instrument issued in the form of a